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The US Tax Reform – Could it have an impact on you?

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The Tax Cuts and Jobs Act (the “New Tax Law”), which lowers business and individual tax rates and makes significant changes to the US tax rules, was effected and promulgated into law in late December last year and most of the changes would take effect from 1 January 2018.

The key changes are highlighted below:-

CorporateIndividual
Tax RatesReduced from 35% to 21%.
The New Tax Law also introduces a 20% deduction for Qualified Business Income including income from a partnership, S corporation or sole proprietorship to the non-corporate taxpayers (with many exclusions and exceptions). This aims to address the disparity of the lower corporate tax rate of 21% and the top individual income tax rate of 37%.		The top individual income tax rate for taxable years 2018 to 2025 has been reduced from 39.6% to 37%.
Other changesThe Corporate Alternative Minimum Tax (“AMT”, which is effectively a prepayment of tax as it generates a minimum tax credit for any AMT paid) of 20% has been abolished and taxpayers may claim a refund on any AMT credits carryforwards:-
– 50% of the remaining AMT credits in tax years 2018, 2019 and 2020;
– a refund on all remaining credits in the tax year 2021.		The standard deduction is roughly doubled:-
Filing status
Standard deduction
Single / Married Filing Separate
US$12,000 (up from US$6,350)
Married Filing Jointly
US$24,000 (up from US$12,700)
Head of Household
US$18,000 (up from US$9,350)
Regarding net operating losses:-

Under prior law:
– A carryback period of 2 years
– A carryforward period of 20 years
– Could offset 100% of taxable income for regular income tax purposes and 90% of AMT income

Under the New Tax Law
– No carryback period
– An indefinite carryforward period
– Could only offset 80% of taxable income		Taking into account of other measures included in the New Tax Law including changes to the itemised deductions, the New Tax Law might not necessarily result in a lower net tax payable for some taxpayers, such changes are as follows:-
– The deduction for state and local taxes will be capped at US$10,000 for Married Filing Joint or US$5,000 for Married Filing Separate / Single fliers (instead of unlimited).
– The deduction for mortgage interest will be capped at US$750,000 (instead of US$1,000,000).
The lifetime estate basic exclusion amount in determining the estate and gift tax has been doubled to US$11.2 million per individual (or US$22.4 million per married couple).

Changes to the US international tax rules

  • Qualified dividends received by US corporations from foreign subsidiaries would be entitled for a 100% dividends received deduction.
    • Accordingly, such dividend would only be taxed at the US individual shareholder’s level when an individual receives such dividend income at his / her individual income tax rate.
  • The New Tax Law introduces a new regime of which any accumulated foreign earnings of Controlled Foreign Corporations would be taxed at the rate of 15.5% for cash or cash equivalents and 8% for illiquid assets.

For a deeper discussion or any enquiry, please contact one of our members of the Tax Advisory team.

Legal Support for Entrepreneurs

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Every entrepreneur and “startup” business needs to have access to the best commercial and business advice, but the issue of costs is always a problem in the early stages of any business.

OLN fully appreciates this and therefore has implemented an “in house legal counsel service” for startups.

This enables an entrepreneur or a startup company to have access to OLN lawyers, at discounted rates, for general legal advice and problem solving.

When there is more substantive work, such as the drafting of documents, such services and assistance can then be provided at agreed discounted rates.

Advice for Startups

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Fintech and other startup businesses are powerful engines, driving economic and job growth in Hong Kong and overseas.

OLN appreciates that every Founder Entrepreneur will face difficult challenges when starting a business. Typically, that Founder Entrepreneur will turn to fellow entrepreneurs, mentors, former colleagues, incubators and friends for initial advice and assistance. That may be in respect of writing a business plan, formulating a budget, determining a corporate structure, raising money or filing documents with the Companies Registry. Whatever it is, starting a business in Hong Kong is never as straight forward and easy as it may appear.

OLN appreciates that timely practical legal advice is critical in the formative stages of any startup business, not least because “getting it wrong” could negatively impact not only on growth and financing opportunities and could also adversely affect the Founder Entrepreneur’s own equity and value in that startup business.

OLN has been actively involved with startups in Hong Kong for many years and so we fully understand that every Founder Entrepreneur wants his or her own “In House Counsel”, pragmatic lawyers who are immediately and regularly accessible and who can answer day to day questions and provide clear and strategic advice.
OLN is available to provide these services and indeed already does so for many of its clients.

The early stages of most startups will require the Founder Entrepreneur to have in place the following documents:

  • a confidentiality and non-disclosure agreement;
  • a subscription and shareholders’ agreement;
  • an intellectual property assignment agreement;
  • a standard employment contract;
  • a tax checklist; and
  • a checklist of regulatory restrictions.

OLN will assist with all the above aspects and documents, tailor-made to the individual requirements of the relevant Founder Entrepreneur.

OLN can provide all the necessary resources to enable every startup to commence business with the benefit of proper advice, analysis and risk management.

OLN can also assist startups with trying to obtain funding and in making all applications for relevant Hong Kong government loans.

Updated Solicitor Rates for Taxation

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Updated Solicitor Rates for Taxation (Party and Party Basis)
 

Successful litigants in Hong Kong rarely recover their full legal costs (i.e. those costs paid to their own lawyers) from the losing/counter party. 

For the past 20 years, the process of recovering legal costs from another party (known as “taxation”) was based on what was considered “fair and reasonable” rates for solicitors calculated in 1997.  Until now, the rates have lagged far behind the commercial rates charged by lawyers in Hong Kong. 

The updated rates will take effect from 1 January 2018.
 

High Court

EXPERIENCEBEFORE 1 JAN 2018AFTER 1 JAN 2018CHANGE (%)
Trainee Solicitor1,066 to 2,0001,700—
Newly admitted1,600 to 2,0002,60030%
2 – 4 years2,000 to 2,5003,20028%
5 – 6 years2,400 to 3,0003,90030%
7 – 8 years2,900 to 3,5004,50028.57%
Over 10 years3,200 to 4,000See below—
9 – 15 years 5,20030%
Over 15 years 5,80045%


District Court

EXPERIENCEBEFORE 1 JAN 2018AFTER 1 JAN 2018CHANGE (%)
Trainee Solicitor533 to 6501,13074%
Newly admitted1,066 to 1,2801,73035%
2 – 4 years1,350 to 1,6502,13029%
5 – 6 years1,600 to 2,0002,60030%
7 – 8 years1,900 to 2,3003,00030.57%
Over 10 years2,100 to 2,600See below—
9 – 15 years 3,46033%
Over 15 years 3,86048.46%

Practically, this means there is now less of a recovery gap for winning parties in litigation.  The substantial increments are intended to allow Hong Kong to remain competitive as a preferred venue of choice for international dispute resolution. The recoverable rates are finally closer to what lawyers actually charge in the city.

EU Regime: When Blockchain meets GDPR

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The General Data Protection Regulation (GDPR), a single, pan-European law for data protection comes into force on 25 May 2018, operates to regulate the processing of personal data in the context of the activities of an establishment of a controller or a processor in EU, regardless of whether the processing takes place in EU or not. 

However, when one harmonized set of regulations meets Blockchain, a decentralized and self-maintaining technology, how much can an individual be reassured that they can still maintain control over their personal data as promised under the GDPR?

Click here to read the article.

Give Me My Personal Data!

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1. What is a Data Access Request (“DAR”)

In the course of business dealings, your company may have collected, held, processed or used the personal data of employees or other individuals. These people are entitled to request your company to supply them with a copy of the personal data held (the “requestor”). This is called a data access request (“DAR”)  and is a core right contained in the Personal Data (Privacy) Ordinance (“Ordinance”).

2. Complying with a DAR

a. When your company receives a DAR, it should:

(i) ascertain the identity of the requestor;

(ii) assess whether it holds the relevant personal data; and

(iii) respond within the statutory time limit.

Personal Data?

b. A requestor is not entitled under a DAR to access data which is not personal data or personal data not belonging to him. To constitute personal data of an individual, the data must firstly relate directly or indirectly to the individual. Secondly, it must be possible from such data to directly or indirectly determine the identity of the individual.

For example, in a performance appraisal report where the appraising officer states his opinion about the aptitude and performance of the appraisee, such opinion will constitute the personal data of the appraisee. On the contrary, recorded opinion about the performance of a property management company expressed by an owner during an owners’ meeting will generally not constitute the personal data of that owner.

Holding relevant Personal Data?

c. If your company holds the relevant personal data, it should supply a copy of the requested data in an intelligible form and within 40 calendar days after receiving the

DAR, unless specific exemption applies.  If the Privacy Commissioner concludes that there is a breach of the Ordinance after investigation, he may serve an enforcement notice on the data user concerned directing it take steps to remedy the situation and where appropriate, to prevent any recurrence. Non-compliance of an enforcement notice is an offence which may result in a fine and imprisonment.

d. If your company does not hold the requested data, it is still required to inform the requestor in writing within the 40-day time limit that it does not hold the data.

e. If your company has already destroyed the requested data it is required to inform the requestor that it no longer holds the data. To avoid any suspicion of bad faith, your company may explain the reason for destroying the data to the requestor.

Should you provide “All personal data”?

f. Where the description of the requested data is too generic, especially where there have been extensive dealings between your company and the requestor during which a large amount of personal data has been generated, your company should seek clarification from the requestor . If the requestor fails to supply the information reasonably requested for locating the requested data, your company is entitled to refuse to comply with the DAR.

g. Having said that, your company may not simply rely on the fact that the request is made in too broad or generic terms to refuse to comply with a DAR. If you are aware of and can reasonably locate the requested data without any further specification from the requestor, the data user should comply with the DAR.

3. Charge for Complying with a DAR

a. Your company may impose a fee for complying with a DAR which should not be excessive, and should not charge a fee on a commercial basis. It should clearly inform the requestor what fee, if any, will be charged as soon as possible and in any event not later than 40 days after receiving the DAR.

b. Fees that will be considered excessive or not directly related to and necessary for the compliance of a DAR could include fees that exceed the cost of compliance, e.g. costs of seeking legal advice in relation to the Ordinance or inclusion or your company’s administrative or office overheads.

The Commissioner’s office has provided examples on fees that may be charged for complying with a DAR in its Guidance Note.  Your company may charge the direct costs attributable to the time spent by its staff and the actual out-of-pocket expenses for locating, retrieving and reproducing the requested data for complying with a DAR. For example, if a clerical assistant has spent five hours on retrieving and photocopying the requested data in the course of handling a DAR, the calculation of the labour costs incurred is the hourly rate of his remuneration (including salary and fringe benefits) multiplied by five.  Your company may charge for the labour cost attributable to the time spent on extracting or editing the requested data, provided that such tasks are directly related to and necessary for compliance with the DAR.

4. Refusing to Comply with a DAR

a. Your company should refuse to comply with a DAR if:-

i. it is not supplied with sufficient information to identify the requestor;

ii. it cannot comply with the request without disclosing the personal data of a third party; or

iii. where compliance with the request is prohibited under the Ordinance or any other regulation.

b. Your company may refuse to comply with a DAR if the request is not made in writing using either the Chinese or English language.

c. Your company is obliged to give written notice and reasons for refusal to the requestor within 40 days from receiving the DAR and is also required to keep a log entry containing the particulars of the reasons for the refusal of the DAR for four years.